OPINION: SOURCING LONG-TERM FINANCE FROM ROBUST CAPITAL MARKETS – THE PROVEN PANACEA FOR PROHIBITIVE INTERMEDIATED AND/OR LEVERAGED SHORT-TERM SOURCES AKIN TO DEBT BURDENED LENDERS SUCH AS COMMERCIAL BANKS

Industrialists Demand For own bank

URN PHOTO/COURTESY: Minister Bahati speaking to industrialists at the UMA exhibition

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independent.co.ug, May 9, 2024 | Kampala, Uganda | THE INDEPENDENT | Uganda’s industrialists, supported by financial institutions, have decided to lead efforts towards the establishment of an industrial bank.

The proposed Uganda National Industrial Bank would serve to reduce the cost of Finance that the private sector persistently fronts as the major challenge to its growth.

This is one of the resolutions from the just-ended two-day Financial Symposium and Exhibition organised by the Uganda Manufactures Association (UMA) at The Lugogo show grounds.

The idea came after the manufacturers realised that all the available sources of funds were not adequately and comprehensively serving their needs.

Francis Ogwang, the Uganda Country Manager, East African Development Bank , agreed with the manufacturers that there was need for other alternatives, adding that many countries have dedicated banks for the different major sectors like agriculture, industry, manufacturing and international trade.

He said that while he believed in a private sector led economic growth, there is need for more government intervention in terms of finance, saying that there should be at least 1 billion dollars ready for lending to the private sector.

Speaking about the the uniqueness from other available long-term lenders like the Uganda Development Bank, Ogwang said an industrial bank should not be under the regulation of the central bank.

He said that because of the strict nature needed by the central bank to control the operations of commercial banks, the industrial bank would not have enough space to sustainably serve its purpose.

An industrial bank, according to Ogwang, is necessary because it would offer both financial, advisory and business incubation services to SMEs and Large industries and mobilise capital specifically dedicated to industrial investments. Other reasons fronted included the ability to ease the competition for the limited Financial resource between the government and private sector and between traders and industrialists.

The mobilisation of cheaper finances would be possible because the industrial bank would be able to have financing partners like the International Finance Corporation, Afrexim Bank, African Development Bank among others, according to Ogwang.

The manufacturers expressed discontent at the available sources of finance which they said were not responsive to their needs.

They also dismissed the government intervention of the Small Businesses Recovery Fund that was launched two years ago as a relief package for enterprises hit by COVID-19. UMA Executive Director, Dr. Ezra Muhumuza Rubanda, said there was a big problem with the banks mandated to manage the funds, accusing the institutions of “hiding” information about the project and instead fronting their own expensive products.

The recovery fund carries a 10 percent interest, while the agriculture credit facility attracts 12 percent, both far lower than the average 17 percent set by the commercial banks.

Alex Lwanja, the Director in charge of the SBRF and the Agriculture Credit Facility at the Bank of Uganda, said while the ACF had performed well with almost 800 billion shillings disbursed since 2011, the SBRF had only lent out just more than 13 billion shillings out of the 200 billion set aside. He put the blame for the low uptake on the strict conditions set by the ministry of finance, but added that they have been pushing for the revision and several of the conditions have now been amended.

These include opening up the fund to businesses that were established after the COVID-19 outbreak, the number of employees a beneficiary should be employing as well as the maximum amount that had been ceiled at 300 million shillings.

He hoped this would attract more people to apply for the credit facility.

Lwanja also called on any entrepreneur who would be told by a bank that the ACF and the SBRF were not available at the bank, to immediately call him.

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